In affirming the Hearing Panel's dismissal of the action, the NAC established standards for determining whether delays could be grounds for dismissal.

In its decision the NAC noted that in a case decided on May 11, 2000, Jeffrey Ainley Hayden, the Securities and Exchange Commission (SEC) had relied on the "fairness" language of the Securities Exchange Act of 1934 in dismissing a disciplinary case because the New York Stock Exchange had engaged in excessive delays in bringing the case. The NAC emphasized, however, that the length of delay alone is not necessarily a controlling factor. Fairness, the NAC found, is an equitable principle requiring consideration of the facts and circumstances of each particular case. Thus, although the length of the delay is an important consideration, adjudicators may also look to traditional equitable concepts for guidance on whether the proceeding is fair under the circumstances.

The NAC found that one traditional equitable principle that should be considered is whether the respondent had unreasonably caused a portion of the delay. Another factor that adjudicators have traditionally considered when resolving equitable claims is whether the proponent was harmed by the alleged delay, although the NAC found that the Hayden decision did not require a showing of harm to establish a "fairness" defense in an enforcement proceeding.

Based on an analysis of the equitable principles found to be applicable, the NAC concluded that Morgan Stanley's conduct in the investigation did not excuse any delay in NASD's investigation and that the delay in bringing the action was prejudicial to Morgan Stanley. Based on the totality of circumstances, the NAC affirmed the Hearing Panel's dismissal of the case.

The NAC is a 14-person committee composed of seven industry and seven non-industry members that decides appeals from disciplinary, membership, and exemption decisions; rules on statutory disqualification applications; and advises on other policy matters. Before being appealed to the NAC, the case was heard by an NASD Hearing Panel. A Hearing Panel consists of an NASD Hearing Officer along with two members of the securities industry.

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